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Strategies & Market Trends : Technical analysis for shorts & longs

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To: Chris who wrote (16132)	5/20/1998 2:29:00 PM
From: Thomas C (Hijacked)	Read Replies (2) of 67886

Chris, I just mentioned earlier that if you can, inspect the MACD Histogram (weekly) for the Nasdaq, Russell 2000 and DJIA and maybe even NYSE Comp. You will see stronger sell signals on the Nasdaq and Russell. But I want to be sure we understand this indicator as I do. I am identifying specifically divergences between the slope of the MACD histogram (weekly) and stock prices. These divergences are rare. And they come in 2 degrees that I know of... Class A (Strongest sell signal) - Declining slope in MACD histogram coupled with rising prices Class C (Weakest sell signal) - Equal height MACD histogram bars (horizontal slope) coupled with rising prices. I agree, the class A divergence identified in the indices now does not GUARANTEE a crash, but I believe that the probablity of one is much higher with this kind of sell signal than any other. Alexander Elder in his book "Trading for a living" (HIGHLY RECOMMEND THIS BOOK) said that Class A divergences usually lead to sharp breaks in the market. And the reason is soley psychology based. (He has called the MACD histogram divergence the strongest sell signal in technial analysis) The amazing thing to me is that I have looked back at DJIA prices in the periods 1987 and 1929 and looked at the MACD Histogram and prices for these periods. And in both cases, there were classic Class A divergences which would have signaled you to get out BEFORE the calamity. And we are getting the same friggin signals now!! So no, I can't guarantee we are going to have a crash, it may just be a 10-14% buying opportunity, but if past history is a guide this puppy certainly has a chance of cracking. In addition I think you have to combine the technical analysis tools (MACD Histogram etc) with the 'degree of emotionality' in the market. In 1987 near the peak and in 1929 obviously trading was in a pretty frenzied euphoric state, highly emotionally based and valuations were at records. Lo and behold, here we are at 9000 and the same holds true. This is why I build a higher probability case for a crash, although of course not guaranteed. Check out this site and look at the MACD Histogram charts I have on there and the divergences. I love this indicator!!!! members.tripod.com Regards, Tom

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